Zeta Global Holdings Corp. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023. Financial statements are unaudited; dollar amounts below are in millions unless noted. Zeta operates a data-driven marketing technology platform and reports as one operating segment.
Financial performance and position
| Metric | Q1 2023 | Q1 2022 / prior balance |
|---|---|---|
| Revenue | $157.6 | $126.3 |
| Gross profit / margin* | $103.3 / 65.5% | $84.5 / 66.9% |
| Operating loss | $(52.4) | $(68.1) |
| Net loss | $(57.0) | $(72.0) |
| Basic and diluted loss per share | $(0.38) | $(0.54) |
| Adjusted EBITDA / margin** | $24.0 / 15.3% | $18.8 / 14.9% |
| Operating cash flow | $20.1 | $21.2 |
| Cash and cash equivalents | $107.8 | $121.1 at Dec. 31, 2022 |
| Long-term borrowings, net of financing costs | $183.8 | $184.0 at Dec. 31, 2022 |
*Gross profit is revenue less cost of revenues, excluding depreciation and amortization. **Adjusted EBITDA is a non-GAAP measure; see the filing’s reconciliation and cautions.
Revenue grew 24.8%, reflecting $14.8 million of incremental revenue from existing customers and $16.6 million from new customers. Scaled customers rose 14% to 411; super-scaled customers increased to 110 from 99. Scaled-customer quarterly ARPU increased 10% to $374,052. Direct-platform revenue represented 71% of revenue, down from 81%; integrated-platform revenue rose to 29% from 19%.
Net loss narrowed by $15.1 million. Operating expenses increased 8.1%, slower than revenue growth. Cost of revenues rose 30.3%, mainly from higher media costs, and gross margin declined about 1.4 percentage points. Stock-based compensation remained substantial at $64.5 million, though down from $73.7 million. Interest expense increased 88.6% to $2.4 million, primarily due to higher interest rates.
Cash used in investing activities was $25.9 million, including $15.9 million for acquisitions, $5.2 million in capital expenditures and $4.9 million in software development. Financing activities used $7.5 million, principally $6.5 million for share repurchases and tax withholding. Cash decreased $13.3 million during the quarter. Working capital was $96.0 million at quarter-end.
Debt, liquidity and capital allocation
Debt principal was $185.0 million, with a variable rate of SOFR plus 2.125% to 2.625%; the reported effective rate was 6.9%. The facility matures February 3, 2026. A $25.0 million incremental revolver commitment increased total facility capacity to $247.5 million; $54.1 million remained undrawn at quarter-end, subject to a $1.2 million letter of credit. The company reported covenant compliance. A hypothetical one-percentage-point rate change would affect annual interest expense by approximately $1.9 million.
Management stated that cash, expected operating cash flows and available credit should meet working-capital needs for at least 12 months and thereafter for the foreseeable future, while cautioning that weaker-than-expected operating performance could adversely affect liquidity. The $50 million repurchase and withholding program runs through December 31, 2024; $33.8 million remained available at March 31, 2023.
Acquisition, contingencies and outlook
On March 1, 2023, Zeta acquired certain WhatCounts assets for consideration of $16.0 million, including estimated earn-outs. The preliminary allocation included $7.9 million of goodwill and $7.0 million of intangible assets. Acquisition-related liabilities totaled $34.5 million, including an $8.0 million contested liability tied to the eBay CRM acquisition. Management said outcomes could be higher or lower than the accrual. Other ordinary-course legal matters were not believed likely to have a material effect.
The filing provides no specific revenue or earnings guidance. Management expects general and administrative costs to rise in absolute dollars but decline as a share of revenue over the long term, and intends to continue investing in sales, marketing and research and development. Key risks include customer acquisition and retention, data access and privacy regulation, email and platform policy changes, cybersecurity, third-party infrastructure, variable interest rates and execution of growth plans. Management reported effective disclosure controls and no material changes in internal control over financial reporting.
Important facts for investors to verify
- Whether revenue growth and scaled-customer expansion can continue while media costs rise faster than revenue and gross margin contracts.
- The sustainability and cash impact of positive operating cash flow given the large non-cash stock-based compensation add-back.
- Debt covenant headroom, exposure to higher SOFR, scheduled amortization and availability of revolving credit.
- The performance and final purchase-price allocation of WhatCounts, and potential payments or litigation outcomes related to acquisition liabilities, especially the contested $8.0 million eBay CRM accrual.
- The dilution and expense implications of outstanding equity awards; the filing reported $303.8 million of unrecognized stock-based compensation expense.
- Whether share repurchases and withholding remain consistent with liquidity needs and debt-facility restrictions.